News Roundup: Reshaping Worldwide Supply Chains in Response to Economic Shifts

Discover the economic ripples of rising inflation and how it's reshaping supply chain strategies and consumer experiences. This week's episode peels back the layers on the U.S. hitting a 2.8% inflation rate, with interest rates clinging to a delicate balance. We're peering into the world of nearshoring, where Chinese firms cleverly set up camp in Mexico to sidestep U.S. tariffs—Man Wah Furniture in Monterey stands out as a case study. And if you think warehousing is just about storage, think again; we're revealing how the integration of robotics and AI is revolutionizing logistics, making it leaner and meaner than ever before.

Gear up for a deep dive into the global automotive industry's latest currents, where U.S. and European giants are bracing against China's BYD and its electric ambitions. Tesla's strategic plays are under the microscope, with rumors swirling about their affordable car's fate. Beyond the boardroom, we're spotlighting a pressing environmental crisis as air quality plummets, putting health at the forefront of the conversation. Plus, we're forecasting the turbulent times ahead for the UK's post-Brexit border controls, with a close look at the looming challenges for businesses, consumers, and the very food on our plates. Join us for a candid look at these intertwining issues that are driving the future of trade, technology, and environmental policy.

Transcript

Tony Hines: 0:05

Hello, tony Hines. Here You're listening to the Chain Reaction Podcast all about supply chain advantage. You're listening to the Chain Reaction News Roundup all things impacting global supply chains this week, every Saturday 12 noon. You know where to be Right here with me.

Tony Hines: 0:28

Us inflation came in at 2.8% in March. It had been expected to come in around 2.7%. That was the prediction. It's slightly higher, but it's around the expected figure. But it's doubtful that the interest rates will fall from the current 5.25 to 5.5 for some time, or at least not until there's a definite or a more definite downturn in the inflation rate. It's the core inflation that's of concern in the United States, because the economy is doing particularly well. It had 1.6% growth and consumer spending is good too. So therefore they don't want to do anything that actually drives inflation back up. So they'll probably leave it for a time and hold that position at the Fed and the central bank until a bit later on.

Tony Hines: 1:25

Now here's a new spin on nearshoring. When you think of nearshoring, you don't normally think of an exporting country thousands of miles away moving closer to your shore. But that's exactly what China have done. Chinese firms are buying up sites in Mexico to export to the United States up sites in Mexico to export to the United States and this helps them avoid the geopolitical barriers that have been placed by the United States against China, because now you're exporting goods from Mexico to the United States or importing from Mexico to the United States, which means that that becomes part of the bilateral trade arrangement between Mexico and the United States. Put simply, that means that you've basically got the goods coming into the US with lower tariffs. As a US consumer, if you go to Costco or Walmart and you purchase some furniture a plush leather sofa maybe it may have come off the production line at Man Wah Furniture, based in Monterey, which may contain a sign or an indication that it's 100% made in Mexico, which it is, but of course, it's made in Mexico by a Chinese manufacturer, and they're not alone. There are many Chinese companies using Mexico as a backdoor to commerce in the United States. So near shoring has taken a different turn with this particular arrangement and it's a way to get past those tariffs.

Tony Hines: 2:59

The Man Wah Furniture Company only moved to Monterey in 2022. It employs about 450 people and they're hoping to employ about 1,200 in the coming years. The manager of the plant, yukem Wee, said he plans to triple production in Mexico and he thinks that the workers in Mexico are hard-working and efficient. So Man Wah, manufacturing its sofas in Mexico, is able to export to the United States easily. So that's one way to avoid the trade war that's been going on for some time between the United States and China. It's quite a smart strategy in one way and avoids all the hassle. If you remember, some time back Elon Musk had said he was going to build a gigafactory in Mexico, but of course those plans have been slowed by the downturn in demand for EVs presently and the trouble that Tesla is in in the competitive market with BYD, a Chinese company.

Tony Hines: 4:02

So this is a new twist on the nearshoring, and many in the United States call what the Biden administration has done security-shoring, which is trying to protect the US economy by having arrangements with countries that are friendly towards the United States, friend-shoring. So security-shoring is very similar to similar to friendshoring, as I understand it. Mexico, of course, is the big beneficiary here, because they're able to draw in Chinese business and grow their economy. So quite a smooth move, unless the United States decide to redraw the bilateral trade agreement sometime in the future, but for now all's well. It's also a signal, of course, to other economies, maybe in Southeast Asia, that they may be able to follow the Chinese model and operate plants in Mexico to avoid tariff structures. But of course we look at this as a means of getting around the current trade war between the US and the United States. But it is of course nothing really new, because it's only what perhaps American companies have been doing to grow their own businesses around the globe, as have other countries. So, for example, european countries often locate plants overseas to gain access to markets. So isn't it just part of normal trade that these things happen? Well, many think so.

Tony Hines: 5:37

When you buy something, you don't often think about where it comes from, how it gets to you. They're not top priorities. You just order something and you want it to come, and you want it to be on time and you want to pay the price you agreed. You want a transaction that goes smoothly and that's about it really Well.

Tony Hines: 5:54

Automated warehouses are now big news. Automated warehousing has become more widespread in the past few years. It's been around for a long time. We've always tried to introduce automation into warehousing, but I suppose the first fully automated warehouses started to appear about 20 to 25 years ago. But they weren't fully automated, they were partially automated, so perhaps should correct that a little bit. But today we're starting to develop what most people would regard as more fully automated warehousing capacity. It's often referred to as the rise of the robots, with the increasing capability and configurability that those robots can bring to their roles in warehouses. The market for mobile robots is expected to rise by $334 billion between 2032 and 2042, and robots cover their cost in three to nine months, enabling small and mid-sized businesses to adopt them.

Tony Hines: 6:57

Warehouses use robots for a wide range of tasks sorting, picking, packaging, batching, transportation, fulfillment, security and inspection. The capabilities of robots in warehouses continue to expand, making them more capable than ever. The future of robotics in warehouses refers to the application of robots to automate various tasks such as picking, packing, inventory management and transportation, which we've just mentioned. Warehouse technology trends show that the market is fragmented, with various verticals looking to invest in robotics, the Internet of Things and artificial intelligence, as well as machine learning. This is a highly competitive marketplace. Cloud-based software is enabling the robots to be managed efficiently. DHL, Rofu, kinderland, a German toy retailer, walmart and Ocado in the UK have all invested heavily in automated warehouses, but the biggest investor probably is Amazon.

Tony Hines: 8:01

If you walk into an automated warehouse. You won't see many people around. There'll be some, but not many. But what you might see is lots of automated lines and robotic equipment moving goods towards those lines to move them towards trucks and get them out the door, and they'll select the item, they'll pick, pack and process the order, stick the labels on and push it towards where it's going to get delivered from and it goes out the warehouse onto a truck and off it goes and that's the warehouse function. On the other side, there's goods coming in to the warehouse and being slotted away on racks until required by an order that comes from a customer, and so robotic, automated warehouses have become the future. Retailers use them, automobile manufacturers use them. In fact, everybody that has a warehouse and a big warehouse wants to have automated equipment that works 24 7 to get goods moving through the supply chain, and they are a way, of course, of moving things quickly out of the warehouse and into the hands of the paying customer who provides the profit and generates the cash to keep the wheels of industry moving along.

Tony Hines: 9:21

I've visited a few warehouses in the past few weeks which are regarded as near fully automated, and that means you'll see lots of robots and small pieces of equipment simply moving around going about their business without any people nearby, and it looks rather odd, but this goes on. As goods arrive, they're unloaded, they're put onto forklifts which are automated and or conveyor belts which take them to the locations where they're to be stored temporarily before an order arrives, and the goods move out the door. And, of course, amazon warehouses were some of the first to invest in lots of this type of equipment to move goods around without people. And when you've got a big warehouse, it can make a big difference to the speed of operation and also to the accuracy. Once those robots and those automated machines are able to move the goods and are programmed to place them in delivery slots, they do so with very high accuracy rates, which means that you can always find the item when it's needed by the customer.

Tony Hines: 10:33

Standard packages, of course, are easier for robots and machines to handle, and there are still some particular items that robots find it difficult to handle, and that's where people move in. People will handle wine bottles or drink bottles or things that robots can't easily grasp. That is, of course, unless they're on a crate form where you're grasping crates. They can do that sort of thing quite easily. But they can't grasp an individual bottle or some awkward shapes of goods that have to go out the door. But most things they can handle packet goods and, of course, cans. Those sort of things can be handled by robots quite easily and it depends how they're packaged and what form they're in. Individual picking items, of course, may have to be handled by humans if they're awkward shapes, because, well, we have the equipment, don't we? We have our hands and our bodies to move stuff around, which is a lot easier if you're handling single items than perhaps a robot. But these robots are developing all the time and they're getting more and more training and experience in handling difficult things, and they usually move around grid systems, so it's very easy for them to move up and down and across and sometimes even in patterns which are not necessarily just in straight lines, and the technology's developed immensely over the past 20 years. Just a few years ago you'd have walked into a warehouse. You'd see a number of people around, you'd see forklift drivers, you'd see people walking around scurrying with pieces of paper, fulfilling orders, hand pallets and so on, but you wouldn't have seen many robots and you wouldn't have seen much automation. But that's all changed. So now there's a merging of technology, robotics, automation and people, but fewer people are going to be in the warehouse of the future.

Tony Hines: 12:41

Us auto safety regulators have opened investigations into whether Tesla's recall of 2 million vehicles announced in December to install the new autopilot safeguards is adequate. The National Highway Traffic Safety Administration, the NHTSA, said on Friday it was opening an investigation and were concerned about crash events after vehicles had the recall software updated. The agency closed its nearly three-year investigation in autopilot, saying it found evidence that Tesla's weak driver engagement system was not appropriate for autopilot's permissive operating capabilities and noted there's a critical safety gap. Nhtsa quoted Tesla's statement that a portion of the remedy both requires the owner to opt in and allows the driver to readily reverse it. Tesla has issued software updates to address the issue, but concerns remain. They say it poses an unreasonable safety risk. The latest recall involved Model Y, x, s 3 and Cybertruck vehicles in the United States equipped with autopilot that was produced between 2012 and 2024. The problem seems to be that the drivers can interfere with the autopilot system and because of that that makes it a higher risk. So more problems with vehicle recalls and Tesla going through quite a tough time presently and sticking with the auto industry.

Tony Hines: 14:27

It was announced this week that US and European politicians have raised concerns that the domestic auto industries could be destroyed by an influx of cheap Chinese electric vehicles. Byd has dramatically hiked export prices compared to what it charges at home, they're nearly double and they can make hefty profits from the European and US markets by achieving margins that they can't get in the Chinese market. Back at home, byd charges more than double its price, and sometimes nearly triple the price for three key models that are sold in China. The BYD ATTO 3 is a compact electric crossover which sells in China at low prices, but in Germany it's priced at $42,789, a price that's still competitive with comparable electric vehicles in the German market. Back at home it sells for $19,283. So you can see quite a difference and I suppose they're concerned that this higher pricing in Europe means that they generate lots of their profits in Europe while, of course, selling products very cheaply back home. So if it can still gain market share in different markets by charging lower prices at home and being subsidised by Western European and US markets, what this demonstrates, of course, is that obviously the manufacturing cost of these vehicles in China is extremely low by comparison with the price and the cost ratios that can be achieved in Europe and the USA.

Tony Hines: 16:09

There's a call for protectionism by US and European automakers. They want higher tariffs on the Chinese EVs to protect their industry. China's domination of the global EV market was on display this week at the Beijing International Automotive Exhibition, where BYD showed off two luxury models as part of a strategy to capture the premium markets. Byd has a lot of flexibility to capture markets in Europe and the US by moving its prices around. Of course, if it wishes to gain market share, it could lower prices just a little and gain quite a significant market share. It depends, of course, whether European and US consumers wish to buy the product, but at the moment, it would seem they do. China is also keeping its EV battery prices much lower than in Europe and the US, so it's putting a lot of pressure on the industries in those markets by keeping its costs down and, of course, having flexibility to alter its prices, and this is why Tesla's under such great pressure from BYD.

Tony Hines: 17:16

In 2023, exports of 240,000 cars accounted for just 8% of its 3 million in global sales, but by adding new models and introducing them to new markets, exports are likely to jump to over 400,000 cars a year, so they're gaining quite a foothold in new markets. And, of course, anybody that's involved in strategy knows that to take new products to new markets is often the most difficult thing to do. But the Chinese have got flexibility in their cost structures and in the way they are exporting EVs to European and US markets. And, of course, don't forget that they process an awful lot of minerals and metals that are required for battery production and EV production, so they really are in a very strong position for the future dominance of this market. As economists might say, land, labour and capital are all much lower and, of course, the regulatory frameworks that the Chinese manufacturers have to work with are also lower, so their barriers to production and entry to the markets are all low, which is quite a competitive advantage.

Tony Hines: 18:38

Another question for Tesla this week is have they put the plans for the affordable car on ice? They were expected to release a car called the Model 2 in 2025, which was going to cost $25,000 in the United States, but that doesn't look likely now. So have they just gone back to making small incremental changes is what analysts suggest and that the affordable car is no longer going to be the major objective. Tesla announced this week it would continue to use existing platforms and lines to build their cars, and they weren't going to go for whole scale change. So, rather like the automakers in the past in detroit, they're just going for small, incremental change rather than the big change. Will this keep customers happy? Well, that remains to be seen. They're just going for small, incremental change rather than the big change. Will this keep customers happy? Well, that remains to be seen.

Tony Hines: 19:33

There was an interesting piece I came across this week by Sharon Kamathi, and she writes about energy in ESG matters for Reuters Digital and she was focusing on air quality in the United States and she was focusing on air quality in the United States. About 44 million Americans live in cities that receive a failing grade for air quality and it's deteriorated to the worst position in 25 years across large parts of the United States, and it's partly due to wildfires. The American Lung Association's annual State of the Air report said that cities with the poorest quality air are concentrated in the West, including Los Angeles and San Bernardino, and California and Phoenix, arizona. Among places with the best and highest air quality are Bangor, maine, along with Honolulu, hawaii and Wilmington, north Carolina, where the ocean breezes tend to disperse pollutants. The report's author, catherine Prutty, is a senior director with the association and she said that this small particle pollution, or airborne soot, is the problem from wildfires and smoke sources. It causes strain on the heart and has been linked to heart attacks and strokes, not to mention lung cancer, low birth weights and perhaps other matters. It was also noted in this report that our pollution in Europe causes 300,000 premature deaths every year. France, poland, italy and Romania are the worst places, according to that report.

Tony Hines: 21:04

Now, a couple of weeks ago I mentioned the post-Brexit border controls coming into force next week, that's, from the 30th of April, and when they come into being it will stoke food inflation. It's estimated it will add up to nearly £3 billion worth of cost of importing goods. According to many of the industry bodies that have been consulted on the matter. It will also drive European suppliers away from the UK market. Many think that the government's readiness for the main border posts for checking goods moving through Dover are not ready. They only received formal approval this week and Horlius said they face challenges over the scale and cost of inspections. This could add about £8 to a consumer monthly food bill. The checks will include compulsory inspections of goods as well as further paperwork requirements, and so it's a massive bureaucracy and more friction added to supply chains in the United Kingdom with goods coming from Europe. A truckload of goods entering Britain from the European Union could have to pay £6,500 from Tuesday next week that's the 30th of April 2024, despite the claims from ministers in the UK government saying that the flat rate fee system will be capped at £145 per consignment.

Tony Hines: 22:29

But the question is what's a consignment? So here we are again. It's six years now since Brexit and we're paying a lot of money for it. It's costing a great deal and it's adding friction to supply chains, causes cost and it's all so unnecessary. It was terrifically badly managed all this and really in a few years' time when the history books tell the tale, it will look complete folly and mismanagement on the part of the UK government. Any delays, of course, because of the additional friction to the supply chains with goods coming in from Europe, particularly in perishable goods, is likely to cause wastage, as food is destroyed as a result of delay. So I guess all the estimates by DEFRA, the Department of Environment, food and Rural Affairs, are gross underestimates of the problem and are more likely to experience chaos.

Tony Hines: 23:28

The Coal Chain Federation represents producers, warehouse operators and hauliers bringing 20,000 lorry loads of produce into the UK every week from Europe, and they drew attention to the fact that shoppers face picking up big bills as a result of higher prices from the border target operating model, which will add £330 million to the cost of importing to the UK. The cumulative costs of controls range from health certificates issued by EU veterinary authorities to inspection levies, and the overall cost is likely to be as high as £3 billion. Defra's estimate said it will just add 0.2% to food inflation, but that's a gross underestimate. According to the Cold Chain Federation, this system has been delayed already five times since Brexit. It's necessary to protect food safety, so it's argued, but importers say that they've been left in the dark about the intended levels of inspection for a vast array of foodstuffs, and many of them are perishable goods. Phil Pluck is the Coal Chain Federation's chief executive and he said the impact on prices is going to be way, way more than DEFRA claims. So more friction in supply chains, more cost for consumers this isn't really what they thought Brexit would be. The Cold Chain Federation has written to Steve Barclay, who's responsible for this area. So British consumers need to brace themselves over the next few weeks and reflect. This won't be good news for a government in an election year, of course, so we'll have to see how this plays out. No doubt I'll be reporting again this time next week.

Tony Hines: 25:24

Nestle has reported its quarterly figures for the first quarter of 2024, with sales estimated at 22.09 billion Swiss francs. That's down 5.9% against last year's 23.4 billion for the same period. The growth performance is down 2% across the group, with North America being hit the hardest, with the results down by 5.8% in that region. There have been a number of supply chain challenges with key ingredients, which include cocoa, of course. This was all reported in Confectionery Production News this week. Mark Schneider, the Nestle CEO, said that they'd expected a slow start, but they want to see a strong rebound in the second quarter with reliable deliveries for the remainder of the year. So watch this space.

Tony Hines: 26:24

The Democratic Republic of Congo is questioning Apple's knowledge that they've incorporated what they call blood minerals from a conflict zone in the African country into its supply chain, and it wants answers, and it wants them quickly. They've asked for answers from Apple in the next three weeks. So this is an international legal claim by the Democratic Republic of Congo against Apple, and they've sent letters to the CEO, tim Cook, and its French subsidiary to raise the concerns about human rights violations involving the minerals extracted from the mines in the country, which could be used in the company's products. They're also asking questions about how Apple is monitoring its supply chains. In the region, there are more than 100 armed rebel groups in operation, and some have carried out mass killings of civilians. They claim that Apple's already sold products with these minerals. Apple's supply chains are too opaque, according to the lawyers, and they could already be in iPhones and Macs. Well, if this is true and found to be a valid claim, this could be quite costly and it could damage Apple's reputation, but no doubt the lawyers will be arguing over that one for some time. Apple currently has a market value of about $2.6 trillion and it's denied it has minerals from the region and it's denying any knowledge of any human rights violations that have taken place. Apple says it conducts its business ethically and responsibly, sourcing minerals in the Congo and other neighbouring countries.

Tony Hines: 28:15

Boeing reported this week that it's had a better quarter than it feared. It burned through about £4 billion in cash during the first quarter after the January 5th Max accident that I've reported in the past few weeks on the Chain Reaction podcast. It says they'll continue to use up a lot of cash in the second quarter as it tries to stabilise its production lines, and the company's departing CEO, dave Colquhoun, says he expects a deal to purchase fuselage maker Spirit Aerosystems will be finalised sometime in the second quarter. Boeing has said it's had a better quarter than it expected in the first quarter after that blowout of the door on the Alaskan airline 737 earlier in the year. So they're trying to put a brave face on this at the moment, and that's all the news we have presently.

Tony Hines: 29:15

It's nearly a month now since the Baltimore Bridge disaster and the cargo ship has this week navigated its way through a newly opened deep water channel in baltimore, ending its weeks-long immobilization due to the collapse of the francis scott key bridge. Commercial vessels have resumed passage through the baltimore bridge collapse scene. Salvaged crews are still hard at work and continue to work on the damaged structure. Four bodies have been recovered, over 1,300 tonnes of steel have been salvaged and three temporary channels have operated four weeks after the collapse. You'll remember the support columns on the bridge collapsed after the Dali ship hit it as it lost its steering capability on its route out of the harbour towards Sri Lanka. It should have been in Colombo by now, but it's still stuck under the bridge. Access to the port remains limited since the collapse and there's a complex salvage operation taking place at the Patapsco River. There's also news of support programmes underway to assist thousands of workers impacted by the collapse. The FBI and the NTSB have launched separate investigations into the incident and Baltimore City has filed a lawsuit against the owners and managers of the cargo ship the Dali, which remains pinned down under tons of steel at the crash site. Engineers are trying to remove 140 containers to refloat the Dali. 120 containers were removed as of Friday. The 22 crew remain on board and have done so since the March 26th accident. So that's a brief update of what's happening with the Baltimore Bridge disaster.

Tony Hines: 31:41

Well, that's it for this week. I hope you've enjoyed the episode, I hope you found out something you didn't know before you started listening, and I hope it's informative. Don't forget to subscribe to the Chain Reaction Podcast and be the first to know about new episodes. Follow us on LinkedIn, x and Facebook. I look forward to seeing you in the next edition of the . Until then, there are many episodes for you to catch up on and I suggest you stop by the website and have a listen to those you've missed or want to listen to again. I'm Tony Hines, I'm signing off and I'll see you next time in the Chain Reaction Podcast. Bye for now.